Posted in Personal Injury on April 25, 2022
There are various reasons why individuals may need help from an attorney. This could include securing legal assistance to help fight a personal injury claim or to help defend against criminal charges. Regardless of why you need an attorney, you may wonder if your lawyers’ fees are tax-deductible. This is important information to know, particularly as tax time comes around and you are looking to save some money.
You may need to file a personal injury claim against another individual or entity who caused you harm. Perhaps you are about to go through a divorce and are looking for an attorney. You may even have a business that needs incorporation and help with local tax laws.
Regardless of why you need an attorney, you are probably thinking of ways to save money on the attorneys’ fees. One way to do this would be to take a tax deduction, but this is probably not going to happen. There are some personal legal fees that are tax-deductible, but the vast majority of attorney fees are currently not tax-deductible.
Under the Tax Cuts and Jobs Act of 2017 (TCJA), which expires in 2025, there were significant changes made to the way itemized deductions work. In fact, all miscellaneous itemized deductions were eliminated from the tax code. Many taxpayers who were able to previously claim an itemized deduction for various types of personal legal fees are no longer able to do so.
Some of the other legal types of tax deductions that were available before 2017 and are no longer available include expenses related to child custody, personal injury lawsuits, changing your name, defense for criminal or civil cases, and divorce settlements.
There are some circumstances where legal fees are still tax-deductible. The TCJA left tax deductions in place for:
While we are on the topic of taxes, we do have some good news for those who may be entitled to a personal injury settlement. Anytime a person is injured due to the negligent or careless actions of another individual or entity, they may be able to recover compensation for their medical bills, lost wages, property damage expenses, and pain and suffering damages.
Most parts of a personal injury settlement will not be taxed by the IRS or state revenue service. Any payment or person received for their medical bills, property damage expenses, or pain and suffering damages will not be taxed. However, if a person receives lost wages because they could not work while they were recovering, then this portion of the settlement will be taxed.
If you or somebody you care about is involved in a legal case, you need to make sure you have an Atlanta personal injury attorney by your side who can help you understand the actions you need to take to win your case. If you are concerned about tax deductions or being taxed on your settlement, you should speak to your accountant both before a settlement comes in as well as after your case is over. You need to know what tax breaks you can legally take, and you also need to make sure that your taxes get paid each year appropriately.